Consumer sentiment has taken a hit, evidenced by a 10% drop reported by the University of Michigan this month, marking a second consecutive decline. Factors contributing to this include worries over tariff-induced price hikes and increased inflation expectations, which have surged to 4.3%. Additionally, small businesses are scaling back their investment plans amid this uncertainty. Despite headline sentiment remaining above historical averages, uncertainty levels are reaching new highs, indicating a possible slowdown in economic growth, as reflected in recent purchasing managers' indices.
"Consumers broadly anticipate that tariff hikes will lead to higher inflation, but policy uncertainty means that their views are subject to change," UMich's Joanne Hsu said.
"The big picture: Excitement about potential Trump-era deregulation and tax cuts drove consumer and executive sentiment higher right after the election..."
"Headline sentiment remains above the historical average, but a measure of uncertainty is the third-highest on records going back almost 40 years."
"An output index across goods and services fell 2.3 points in early February to the lowest in 17 months, signaling 'a steep deceleration in the pace of economic growth over the past two months.'"
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